DEPARTMENT OF MEMBER FIRM REGULATION

The Department of Member Firm Regulation (the "Department") is responsible for monitoring for compliance with the financial, margin, and books and records requirements of the SEC, Federal Reserve Board ("FRB") and CBOE with respect to those broker-dealers for which CBOE is the financial designated examining authority ("DEA"). CBOE is the DEA for all of its sole members, individuals or organizations with Exchange appointed trading rights. Approximately 100 of these entities are capital computing firms. CBOE also maintains sales practice responsibility for sole members that conduct a public customer business and is one of only two self-regulatory organizations ("SROs ")(CBOE and NYSE) designated as the examining authority for the four broker-dealers that clear the accounts of independent options market makers.

The financial monitoring program includes a daily net capital computation for clearing members to insure net capital is sufficient to meet SEC and CBOE minimum requirements. Monitoring efforts are coordinated with The Options Clearing Corporation ("OCC") to ensure the viability of CBOE clearing members. Staff monitors the adequacy of the trading equity of CBOE Market-Makers. The financial statements and net capital computations (FOCUS Reports) of members subject to the SEC net capital rule are reviewed on a monthly basis.

Routine annual financial examinations, focusing on net capital, status of books and records, customer protection, margin, financial reporting, proprietary trading, risk control, anti-money laundering compliance, electronic communications and operational efficiency are conducted for approximately 100 member firms. Additional inspections and special investigations are performed as warranted.

The Department also works with the staff of the SEC and FRB to interpret and develop financial regulations and seek regulatory relief where appropriate. The Department continues to provide leadership to its fellow SROs in the implementation of options margin changes to Regulation T and SRO rules.

The Department is also responsible for the registration and qualification process for persons associated with CBOE members. In excess of 150,000 individuals globally are registered with CBOE. To ensure that registered representatives selling options to the public are adequately qualified, the Department participates in the development of several securities industry examinations including the Series 4, 5, 7, 9, 10 and 15 examinations which cover virtually every financial instrument regulated by the SEC. Individuals qualified through these examinations must be registered with CBOE. The Department also participates in two subcommittees of the Securities Industry Counsel on Continuing Education for the General and Supervisory Regulatory Elements.

If you would like further information about the Department of Member Firm Regulation please call (312) 786-7713.